Mattel (MAT) Falls On Wider-than-Expected Q2 Loss, Sales Lag

Shares of Mattel Inc. (NASDAQ:MAT) declined nearly 5% in afterhours trading on Jul 27, after the company reported weak results in the second quarter of 2017.

Earnings & Revenue Discussion

Mattel’s adjusted loss per share of 14 cents was wider than the Zacks Consensus Estimate of a loss of 8 cents. Also, the incurred loss was wider than the prior-year quarter loss of 2 cents.

Notably, revenues of $974.5 million rose 2% year over year as reported and 3% in constant currency. However, sales failed to surpass the consensus mark of $1 billion by nearly 3%. Higher sales of "Cars 3" products failed to offset weak demand for its key brands such as American Girl, Barbie and Fisher-Price.

Quarter Highlights

Worldwide gross sales were up 1% year over year as reported and 2% in constant currency.

Gross sales in North America (including the U.S., Canada and American Girl) declined 2% as reported and in constant currency. Meanwhile, in the International region, gross sales increased 6% year over year (up 8% on a constant currency basis).

Notably, gross margin decreased 430 bps to 41% from 45.3% recorded in the year-ago quarter. This was due to higher royalty expense, unfavorable product mix, lower licensing income and higher product costs.

Moreover, adjusted operating loss for the quarter was $40.1 million comparing unfavorably with the prior-year quarter operating income of $6.2 million.

Worldwide Revenues by Brand

Mattel, through its subsidiaries, sells a broad variety of toy products that are grouped into four major brand categories: Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

As reported, worldwide gross sales at Mattel Girls & Boys Brands rose 10% to $609.9 million year over year (up 11% on a constant-currency basis). The upside was driven by a 58% rise (59% in constant currency) in the Entertainment business mainly backed by sales of Cars 3 products.

However, the results were somewhat offset by a 5% fall in Barbie sales (down 4% in constant currency) given lower licensing income. The Other Girls brands decreased 28% as reported and in constant currency, due to declines in Monster High and Ever After High sales. Notably, the Wheels category too dropped 6% in the quarter (down 5% in constant currency).

Gross sales at Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends and Power Wheels brands, slipped 3% year over year to $335 million (down 2% in constant currency).

Gross sales at American Girl Brands were $64 million, down 6% from the year-ago quarter as reported and on a constant currency basis.

Gross sales at Construction and Arts & Crafts Brands, which includes the Mega Bloks and RoseArt brands, were $53 million, down a significant 27% from second-quarter 2016 (down 26% in constant currency). The fall came primarily due to declines in Mega Bloks licensed products.

Performance of Other Toymakers

Among other toymakers, Hasbro Inc. (NASDAQ:HAS) posted mixed second-quarter results, wherein earnings surpassed the Zacks Consensus Estimate while revenues slightly lagged the same. Meanwhile, JAKKS Pacific, Inc. (NASDAQ:JAKK) reported wider-than-expected loss. Also, sales were lower than anticipated in the quarter.

Zacks Rank & Stock to Consider

Mattel currently carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the same sector is Nintendo Co (T:7974)., Ltd. (OTC:NTDOY) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Nintendo’s fiscal 2018 earnings moved up 8.3% over the last 60 days. Meanwhile, EPS is expected to skyrocket 180.2% for the same period.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaries,"" but that should still leave plenty of money for regular investors who make the right trades early. See Zacks' 3 Best Stocks to Play This Trend >>